welcome to trading zone
in this video we'll cover a price action
trading strategy
that's based on resistance level
rejection
the core of the strategy revolves around
profiting from a price bounce against a
zone of resistance
which will then be confirmed with a
specific candlestick formation
we then combine this approach with sound
money management
and we have the foundation to our
trading strategy
this video will be split into four parts
the first
part will cover the identification of
key levels that will serve
as opportunity zones in which we'll be
looking for trades
in the second part we'll cover the
specific candlestick formation that
we're looking for
in order to pull the trigger on the
trade part 3 we'll cover how to quantify
risk and we'll talk about entries as
well as where to place stops and limits
according to your preference and trading
style finally we'll take a close look at
a specific trade example to better
demonstrate the power of this trading
strategy
now that we have our plan together let's
get started with part one
the setup and how to identify a key zone
of opportunity
what we want to see for the setup is a
rise in price
followed by a steep decline from this
point
we look for the highest candlestick bar
on the left and pay particular attention
to the top
wick this top wick will be used in order
to create a zone that could potentially
offer us a trading opportunity in the
future
when we reach this point we can simply
place
an alert at the very bottom of our zone
so that we can get notified if price
revisits this area
as price slowly works its way up we are
no longer glued to our computer
waiting for an opportunity once we get
alerted
we are in the opportunity zone and we
wait for our trigger to confirm
a reversal since we are expecting a
bounce to the downside we are looking
for a logical
entry point this brings us to part two
the trigger the trigger is composed of
two specific candlestick patterns
that will be used to confirm that price
is being rejected from the zone
this is only one example of a
candlestick pattern that could be used
but you could experiment with your
favorite setups at will
the first candlestick must have a top
wick that's at least as tall as its body
this signifies a form of selling
pressure or level rejection
the candlestick can take the form of a
doji or a shooting star
but we're not too picky as long as we
have a taller wick than the body size
we're good
the second candlestick should have a
tall body that ideally
swallows the body of the previous candle
this is called a bearish engulfing
pattern
additionally the close must be lower
than the previous low
further confirming weakness and price
action
each of these candlesticks are useful on
their own
but when combined they offer a powerful
edge to confirm his supply shift
don't be shy to experiment with
different variations on the same theme
to tailor the strategy
to your needs but also not to miss too
many opportunities
now that we've seen the trigger which
increases the chances that we might see
a bounce against the resistance zone
we need to discuss different options for
the money management part
of the strategy first we need to discuss
the entry part of our trade
if we are eager to enter the market
right away because our analysis suggests
that the market will keep falling
then we could enter at market on the
opening of the next bar
this would give us a price near the last
bar close
if however we believe that the market
will retrace
we could put out an offer at a certain
percentage of the previous bar
and see if we get a fill therefore
taking less risk
because of a tighter stop loss the first
option ensures it will participate in
the next move
but it will not give us as good an entry
as the entry on retracement
another option could be to enter only if
the low of the previous scandal is
visited again
this would classify it as a momentum
entry
since it requires follow-up from the
market in our favor
in order to activate the trade it
becomes another form of confirmation but
it gives us the
worst price of the three options lastly
you could use a combination of these
entries with lower size
and pyramid into the position gradually
once again
back test your strategy and adapt it to
your needs and your
trading plan now for the stop loss for
the stop loss we can use either the
highest high of the candlestick pattern
which forms our trigger
or we could use the high of the last big
bearish engulfing pattern bar we had
as our exit from the trade once again it
becomes a question of preference
for our limit the important thing is to
make sure that we have a higher reward
versus risk that we take on
each individual trades in other words
if we risk a dollar we would like to
make two
or three dollars if the trade goes our
way
the goal is to have a positive outcome
if we keep repeating the same strategy
over and over
additionally if we open several small
positions using various types of entries
we could take partial profits at
different risk reward ratios as well
that's it for the theory so now let's
move on to part 4 with some examples of
the trading strategy in action
here is a daily chart on the australian
versus the new zealand dollar meaning
that each candle is worth a single day
what we can see right away is that on
the top left price got rejected twice in
the same area before initiating a
downtrend
at this point we can look at the
candlesticks on the left to trace our
opportunity zone in case price decides
to do a v-shape recovery
as we see the v-shaped recovery takes
shape
we can place an alert on our broker
charting software
in order to let us know that we have
reached the trading zone
that we should look at smaller time
frames and wait for an
opportunity to execute our trading plan
on the daily chart itself we can see
clearly that we have a trigger with our
candlestick pattern
but once the zone has been reached we
could look for an even better entry
using smaller time frames
we're now going to zoom in on the red
circle considerably
we're going to go on a one hour chart
and see if we can spot a better trading
setup
to enter the market at lower risk
as we can see our entry would have been
much more favorable on a smaller time
frame
offering a better risk versus reward
ratio
than on the daily time frame we will now
zoom out again on the daily chart to put
into perspective the following market
move
we will focus on this zone now and zoom
in again to see what would have happened
after our candlestick trigger got
activated and the potential profit we
could have made
as we can see it would have been
possible to get a 10
to one ratio of profit versus risk
on this particular trade of course
that's not always the case but it just
shows the potential of exploring
further and perhaps tailor the strategy
to your needs
and back this to make sure your
parameters are profitable
the strategy works on other time frames
in the daily charts but your risk reward
ratios will be diminished
because there's a limit to how much you
can zoom into smaller time frames to
find a good trigger
but that doesn't mean that there aren't
any opportunities
here's an example of the trading
strategy demonstrated on a one-hour
chart of the same currency pair
we can see on the left some rejection
candles with tall
wicks that we can use to define our
trading zone
from there the price makes a downtrend
and then reverses towards our trading
zone again
all we need now is to wait for the
trigger which occurs right here
and from there the market goes lower as
expected
notice how the following candles retrace
after our trigger occurs
this is why i think it's important to
zoom in on smaller time
frames to try to figure out if we can
get a better entry on a retracement but
that's the topic for
another video these examples are pretty
recent
but here's another pattern on the daily
chart of the same currency pair
that goes back over 10 years we can see
the same pattern of price creating a top
and a v-shaped recovery
not long after it reaches a trading zone
and we can see our trigger appear
and then follows the decline in price
this
just shows that it's a timeless trading
strategy that is unlikely to stop
working
in the near future this is partly why
it's part of my trading plan and i'm
sharing it with you
today i've created this strategy several
years ago and i've never seen it in
any trading books i hope that you
appreciated me
sharing this strategy with you today if
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would like to thank my loyal subscribers
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it means a lot to me and it helps me
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thanks for watching